October 14, 2014 - 8:05pm EST by
2014 2015
Price: 4.05 EPS $0.00 $0.00
Shares Out. (in M): 51 P/E 0.0x 0.0x
Market Cap (in $M): 210 P/FCF 0.0x 0.0x
Net Debt (in $M): -170 EBIT 0 0
TEV (in $M): 40 TEV/EBIT 0.0x 0.0x

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  • Warrants
  • Inversion
  • Pharmaceuticals
  • Biotech
  • Failed Acquisition
  • Potential Acquisition Target
  • Regulatory Downside Risks
  • Canada
  • Acquisition Target


I believe QLTI warrants examination because:

  1. Last June, AUXL  bid ~$6 per share for QLTI, primarily for tax inversion; the deal broke as ENDP bid for AUXL
  2. Aside from QLTI’s value as a tax-inversion merger candidate, one is paying ~$30MM EV for a phase 3 ready drug, on which QLTI  has spent ~$100MM ($2 per share) and which QLTI has been trying to partner for 12-15 months

By the end of this year, QLTI should have $3.20/share in net cash. They also have contingent payments they should receive (related to their sale of Visudyne) whose present value is ~$0.20 per share.

Given the slowness of partnering discussions and AUXL’s reluctance to develop the drug, as mentioned in AUXL's QLTI conf call, let’s conservatively assume this drug is worthless.

So what is QLTI’s tax inversion candidacy worth?

Tax inversion requires QLTI own at least 20% of the pro-forma company.

Given that a company with a market cap of more than $2 billion probably would not pay the QLTI premium to meet this rule, I screened for pharma/biotech or similar companies with US tax domiciles and market caps and enterprise values of $2 billion and below.

I looked for those that would have the largest savings relative to the premium they would have to pay and derived the following lists of potential buyers:

Potential biotech/pharma/med-tech buyers:

  1. Impax Labs
  2. Acadia Pharma
  3. Insys Therapeutics
  4. PDLI Biopharma
  5. The Medicines Company
  6. Nuvasive Inc
  7. Globus Medical

Potential other buyers:

  1. Prestige Brands Holdings
  2. Medifast, Inc

I estimated the present value of tax savings, net of tax assets, of $200MM to $900MM for the first 5 buyers above.

AUXL was willing to pay an EV of ~$175MM for such savings.



Nobody buys QLTI, partnering talks fail, and QLTI decides to develop their drug. Given QLTI is controlled by the top 4 shareholders and the last Board and mgt were removed due to imprudent R&D spending, I see this risk as a low probability. 

US Congress changes tax inversion law. 

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.


new buyer bids for QLTI
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